2022 (10) TMI 722 - HC - Income Tax

Reopening of assessment u/s 147 - delayed payment surcharge and interest on account of delayed payment - HELD THAT - Expression, reason to believe , appearing in Section 147 of the Act does not give authority to the relevant assessing officer to take a different view on a matter which has been previously considered in course of the original assessment. A change of opinion is not permissible under colour of reason to believe . This would apply more so in respect of a notice seeking to reopen the matter pertaining to an assessment year more than four years after the end of the relevant assessment year. As at the time of passing the assessment orders in respect of assessment years 2012-13 and 2013-14, the relevant assessing officer(s) must have noticed the special treatment in the accounts of the delayed payment surcharge and the interest and, upon perceiving the treatment appropriate since the incomes on such counts had only notionally accrued but had not been realised, did not deem the accounts to be inappropriate or the treatment of the relevant heads impermissible; and as such, completed the assessment as per the audited accounts. The fact that a superior officer deemed such treatment unacceptable in respect of a subsequent assessment year, may make the earlier assessment orders fallible and liable to be reopened; though not on the ground that there was no full or true disclosure of material facts by the assessee, but by reason of the methodology adopted for the assessment. However, the freedom to reopen concluded orders of assessment that Section 147 permits in its primary provision is circumscribed by the additional conditions spelt out in its proviso in respect of assessment orders pertaining to the assessment years after the expiry of four years from the end thereof. Even in respect of concluded assessment orders of assessment years falling within the four-year period, there may be perfectly good answers for not reopening the same. But that would pertain to the merits of the matter that ought not to be considered in this extraordinary jurisdiction under Article 226 of the Constitution. The orders passed under Section 147 of the Act in respect of assessment years 2012-13 and 2013-14 are without jurisdiction as they do not comply with applicable condition indicated in the relevant proviso. Once an order u/s 147 is found to be without authority, the consequential notice under Section 148 of the Act has no legs to stand on and the matter or the assessment cannot be reopened in the absence of the statutory pre-condition being met.

Issues Involved:

1. Withdrawal of writ petitions for assessment years 2015-16 and 2016-17.
2. Interpretation of Section 147 of the Income-Tax Act, 1961 for assessment years 2012-13 and 2013-14.
3. Validity of reassessment notices under Section 148 of the Income-Tax Act.
4. Accounting practices of the petitioner regarding delayed payment surcharge and interest.
5. Compliance with the proviso to Section 147 of the Income-Tax Act.

Issue-Wise Detailed Analysis:

1. Withdrawal of Writ Petitions for Assessment Years 2015-16 and 2016-17:
The petitioner sought to withdraw the writ petitions pertaining to assessment years 2015-16 and 2016-17. Consequently, WP (C) No.347 of 2019 and WP (C) No.348 of 2019, along with MC (WPC) No.210 of 2019 and MC (WPC) No.211 of 2019, were dismissed as not pressed without delving into their merits. It was clarified that this dismissal would not prejudice the petitioner in any other pending or future proceedings.

2. Interpretation of Section 147 of the Income-Tax Act, 1961 for Assessment Years 2012-13 and 2013-14:
The central issue in the remaining writ petitions revolved around the interpretation of Section 147 of the Income-Tax Act, 1961, as it stood before the 2021 amendment. The relevant provision allows the Assessing Officer to reassess income if there is "reason to believe" that income chargeable to tax has escaped assessment, subject to certain conditions and time limits.

3. Validity of Reassessment Notices under Section 148 of the Income-Tax Act:
The reassessment notices for the assessment years 2012-13 and 2013-14 were issued based on an order under Section 263 by the Principal Commissioner of Income-Tax (PCIT) for the assessment year 2014-15. The PCIT observed that the petitioner accounted for "interest on debtors" on a cash basis instead of an accrual basis. The Department contended that this accounting practice led to the escape of income assessment. However, the court noted that the reassessment for periods beyond four years from the end of the relevant assessment year requires proof of the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

4. Accounting Practices of the Petitioner Regarding Delayed Payment Surcharge and Interest:
The petitioner, a public sector undertaking under the Ministry of Power, followed a mixed accounting practice. While it generally adhered to the mercantile system, it accounted for delayed payment surcharge and interest on a cash basis. This practice was supported by a letter from the Ministry of Power dated August 19, 2003, which recommended accounting for surcharge on a cash basis to avoid book losses. The petitioner argued that this practice was consistent and transparent, as reflected in its audited accounts.

5. Compliance with the Proviso to Section 147 of the Income-Tax Act:
The court emphasized that for reassessment beyond the four-year limit, the Department must demonstrate that the income escaped assessment due to the assessee's failure to disclose material facts fully and truly. The court found that the petitioner's audited accounts and accompanying notes clearly disclosed the accounting treatment of delayed payment surcharge and interest. Therefore, there was no failure on the part of the petitioner to disclose material facts. The court held that the reassessment orders for the assessment years 2012-13 and 2013-14 did not meet the conditions stipulated in the proviso to Section 147 and were thus without jurisdiction.

Conclusion:
The court set aside the reassessment notices issued under Section 148 for the assessment years 2012-13 and 2013-14, finding them unsustainable. The writ petitions WP (C) No.345 of 2019 and WP (C) No.346 of 2019 succeeded. The court concluded that the reassessment orders did not comply with the statutory pre-condition of the assessee's failure to disclose material facts. The court also dismissed the Department's affidavits as almost redundant, given the lack of any allegation of non-disclosure by the petitioner. There was no order as to costs.

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